The courier, express, and postal industry is the largest segment of the transportation marketplace worldwide. This blog will provide a personal perspective on the challenges faced by firms in the industry as they serve an increasingly competitive market.

Monday, December 14, 2009

The United States Postal Service is unique among publicly-owned postal operators in that no executive department has the "shareholder." responsibility for the enterprise. By default, this responsibility has fallen on Congress. Since the passage of the PRA, Congress has tended to downplay its shareholder role which has resulted in Congressional actions that undermine the competitiveness of the Postal Service and the value of the enterprise.

The problem with Congress reflects the inherent conflict between its interest in the Postal Service as shareholder and its institutional interest in reelection. As such, the Postal Service has frequently become a tool to help balance the Federal Budget, with these actions constantly weakening the financial position of the Postal Service. (See. USPS-OIG white paper, Federal Budget Treatment of the Postal Service) Other actions reflect institutional interests in serving constituent groups that could be affected by postal business strategies, many times to the detriment of the enterprise.

The Postal Service has not helped its shareholder see these conflicts as its business strategy has been opaque to even many seasoned observers. Its current strategy focusing on reducing costs by reducing retail locations and delivery days raise this question again. As the observer, Rag Content notes:

The potential impact of changing operations is something the Postal Service seems to be doing without much thought to its customer base these days. As it hides behind the line - matching resources to revenue, it continues to downsize its operations from closing post offices to reducing the remittance mail processing on Sundays in some locations to its AMP consolidation effort. The post office closing is the only docket open before the Postal Regulatory Commission at the moment, yet every change the Postal Service is making operationally affecting its ability to provide uniform service throughout the country.

A similar question is now being raised by shareholders by another troubled enterprise, General Electric. General Electric, a diversified financial, manufacturing, and entertainment company, has gone through probably the worst year in the company's history. The company had to take funds from TARP funds to shore up its financial unit and has sold nearly $10 billion in assets and slashed its dividend by two-thirds in order to improve its liquidity.

Now shareholders are looking for a clearer picture of how General Electric will earn a competitive return on investment dollars going forward. A recent Bloomberg News story covering General Electrics upcoming December 15,2009 shareholders meeting illustrates how involved shareholders think about a company with an unclear business plan.

General Electric Co. Chief Executive Officer Jeffrey Immelt says a financial crisis like the one he faced this past year often demanded action first and explanations later. Later is now, investors say.

“People want them to do a better job explaining what the return hurdles are for the businesses going forward,” said Mark Demos, who helps manage $19.8 billion at Fifth Third Asset Management in Minneapolis. “GE has a mixed track record on putting capital to work over the past five years.”

The shareholder of the Postal Service needs to ask the same types of questions that the shareholders of General Electric are asking GE's management.

What is your long-term strategy to ensure a commercially viable, and more importantly self sufficient enterprise?

How do short-term cost cutting efforts affect that long-term strategy?

What is the long-term business strategy that the changes identified in the Postal Service's business model paper support?

Is that strategy financially viable and what risks could derail its viability?

How much capital and cash is needed to execute that strategy?

If existing capital and cash is not sufficient, what is your strategy to raise more capital?

What are the risks to the shareholder and the existing holders of Postal Service debt and other unfunded obligations?

While these are questions that Congress, as shareholder should ask both now and on a regular basis in the future. Given Congress's track record on taking their responsibility as shareholder as seriously as General Electric's shareholders do, it may make sense to explicitly give some other government entity that responsibility, especially if solving the current financial crisis will require the Postal Service, like General Electric to seek relief from either unfunded obligations or expansion of its borrowing capabilities.

1 comment:

Anonymous
said...

for one they could stop giving bonuses to postmasters,supervisors,and executives.people don't like going to the post offices anymore because of long wait in lines.give them the clerks they need.not to mention the wait for carriers due to lack of clerks throwing mail.so they can get out on the street to deliver.there seems to be no concern for customer service anymore.at least not by management.it's all about the money now.

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Blog Author

Alan Robinson is the President of the Direct Communications Group and an associate of Analytic Business Services (AnaBus). He has over twenty years experience helping firms and government officials deal with the regulatory, policy, marketing, and management issues associated with changes in competition within transportation, parcel delivery and postal markets.
He can be reached at alan.robinson@directcomgroup.com